Avon 2004 Annual Report Download - page 26

Management’s Discussion and
Analysis of Financial Condition
and Results of Operations
Avon has been defending actions commenced in the
Supreme Court of the State of New York by Sheldon Solow
d/b/a Solow Building Company (“Solow”), the landlord
of the Company’s former headquarters in New York City.
In one action, Plaintiff sought aggregate damages of
approximately $80.0, plus interest, for the Company’s
alleged failure to restore the leasehold premises at the
conclusion of the lease term in 1997. In May 2004, Avon
entered into a settlement with Solow and paid Solow $6.2
in exchange for a release of Solow’s claims. In a separate
action that has been pending since 1975, Solow alleges
that Avon misappropriated the name of its former head-
quarters building and seeks damages based on a pur-
ported value of one dollar per square foot of leased space
over the term of the lease. Although this action remained
dormant for over twenty years, discovery in the matter
has been revived and trial is scheduled to begin in May
2005. This action is unaffected by the settlement with
Solow. While it is not possible to predict the outcome of
litigation, management believes that there are meritori-
ous defenses to the claims asserted and that the remain-
ing action should not have a material adverse effect on
the Consolidated Financial Statements. This action is
being vigorously contested.
Avon Products Foundation, Inc. (the “Avon Foundation”)
is a defendant in an arbitration proceeding brought
by Pallotta teamworks (“Pallotta”) in September 2002,
before Judicial Arbitration and Mediation Services, Inc.
Pallotta asserts claims of breach of contract, misappropria-
tion of opportunity, tortious interference with prospective
contractual arrangement and unfair competition arising
out of the Avon Foundation’s decision to use another
party to conduct breast cancer fundraising events, and
seeks unspecified damages and attorneys’fees. The arbi-
trator dismissed Pallotta’s misappropriation claim in
January 2003, its unfair competition claim in February
2003 and its tortious interference claim in July 2003. A
hearing on the remaining claim commenced in July 2003
and the parties have now completed the post-hearing
briefing stage. Oral argument before the arbitrator has
been scheduled for March 2005. The Avon Foundation
believes that it has meritorious defenses to the claims
asserted by Pallotta and has filed a number of counter-
claims. The Avon Foundation is a registered 501(c)(3)
charity and is a distinct entity from Avon Products, Inc.,
which is not a party to these proceedings. While it is not
possible to predict the outcome of litigation, manage-
ment believes that these proceedings should not have a
material adverse effect on the Consolidated Financial
Statements of the Company.
Blakemore,et al.v.Avon Products,Inc., et al. is a
purported class action pending in the Superior Court
of the State of California on behalf of Avon Sales Rep-
resentatives who “since March 24, 1999, received prod-
ucts from Avon they did not order, thereafter returned
the unordered products to Avon, and did not receive
credit for those returned products.” The complaint
seeks unspecified compensatory and punitive dam-
ages, restitution and injunctive relief for alleged
unjust enrichment and violation of the California Busi-
ness and Professions Code. This action was com-
menced in March 2003. The Company filed demurrers to
the original complaint and three subsequent amended
complaints, asserting that they failed to state a cause of
action. The Superior Court sustained the Company’s
demurrers and dismissed plaintiffs’ causes of action
except for the unjust enrichment claim of one plaintiff,
the amount of which is nominal. The court also struck
plaintiffs’class allegations. Plaintiffs filed Petitions for
Writ of Mandate with the Court of Appeal of the State
of California seeking to overturn the Superior Court’s
dismissals in respect of the complaints. In June 2004, the
Court of Appeal issued an Alternative Writ of Mandate
and Order mandating that the Superior Court vacate its
prior rulings or, in the alternative, show cause why such
a mandate should not issue. Separately, plaintiffs filed
with the Superior Court a motion for reconsideration of
the court’s decision striking plaintiffs’class allegations in
this matter, which decision was unaffected by the action
of the Court of Appeal. The Superior Court chose not to
vacate its rulings in respect of the complaints, so the
parties were ordered to prepare briefs to the Court of
Appeal regarding the Superior Court’s order granting the
Company’s demurrers. The Superior Court also chose not
to change its ruling striking plaintiffs’class allegations
and the plaintiffs have appealed that decision to the
Court of Appeal. The parties have fully briefed the Writ
of Mandate proceeding and the appeal of the class
allegation issue. Argument before the Court of Appeal
regarding both the Writ of Mandate and the appeal of
the class allegation issue is scheduled to take place in
March 2005. The Company believes that this action is a
dispute over purported customer service issues and is
an inappropriate subject for consideration as a class
action. While it is not possible to predict the outcome
of litigation, management believes that there are meri-
torious defenses to the claims asserted and that this
action should not have a material adverse effect on
the Consolidated Financial Statements. This action is
being vigorously contested.
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